Russian hackers used bitcoin to fund election interference, so prepare for FUD

The indictment filed today against 12 Russians accused of, among other things, hacking the DNC and undermining Hillary Clinton’s campaign also notes that the alleged hackers paid for their nefarious deeds with bitcoin and other cryptocurrencies. This unsavory application of one of tech’s current darlings will almost certainly be wielded against it by opportunists of all stripes.

It is perhaps the most popular and realistic argument against cryptocurrency that it enables anonymous transactions globally and at scale, no exception made for Russian intelligence or ISIS. So the news that a prominent and controversial technology was used to fund state-sponsored cyber attacks will not be passed over by its critics.

You can expect bluster on cable news and some sharp words from lawmakers, who will also probably issue some kind of public denouncement of cryptocurrencies and call for more stringent regulation. It’s only natural: their constituencies will hear that Russians are using bitcoin to hack the election systems and take it at face value. They have to say something.

But this knee-jerk criticism is misguided and hypocritical for several reasons.

First is that it’s not as anonymous and mysterious as critics make out. The details in the indictment actually provide an interesting example (far from the first) of the limits of cryptocurrency’s ability to obscure its users’ activities.

The painstaking research of the Special Investigator’s team revealed the approximate amounts and methods involved, and although there is a veneer of anonymity in that addresses are not inherently tied to identities, it is far from impossible to establish ownership. Not that they didn’t try, as the indictment shows:

The Defendants conspired to launder the equivalent of more than $95,000 through a web of transactions structured to capitalize on the perceived anonymity of cryptocurrencies such as bitcoin.

They also enlisted the assistance of one or more third-party exchangers who facilitated layers transactions through digital currency exchange platforms providing heightened anonymity.

But the process of laundering, after all, becomes rather difficult when there is an immutable, peer-maintained record of every penny being pushed around. Small slip-ups in the team’s operational security allowed investigators to tie, for example, an email address used to access a given bitcoin wallet with the one used to pay for a VPN.

[U]sing funds in a bitcoin address, the Conspirators purchased a VPN account, which they later used to log into the @Guccifer_2 Twitter account. The remaining funds from that bitcoin address were then used […] to lease a Malaysian server that hosted the dcleaks.com website.

It’s likely that the very same distributed ledger technology that allows for anonymous international payments in the first place also creates an invaluable investigative tool for those savvy enough to take advantage of it. So although bitcoin has its shady side, it’s far from perfect secrecy, especially when exposed to the privileges of a federal investigative team.

The second reason the criticism will be hollow is that it doesn’t provide much in the way of new capabilities for those who wish to keep their activities online secret.

There are established methods used by nation-states and garden-variety hackers and criminals alike that minimize or eliminate the possibility of tracking. Money laundering is performed at huge volumes worldwide and there are shady banks, loopholes, and puppet organizations peppered across the globe.

Cryptocurrencies are convenient for paying for things online because there are a number of vendors (dwindling, but they exist) that accept it straight, or if one is not available it is reasonably liquid and can be shifted easily. I feel sure that our own intelligence services are making good use of it.

On that note is the third reason this FUD will be risible: if we are going to address the problem of dark money influencing politics, using bitcoin for hacking activities doesn’t even amount to a rounding error and it is cynical prestidigitation that makes it appear more than such.

I won’t belabor the point, because it is surely topmost in many an American’s mind that cash funneled through Super PACs and offshore accounts, backroom deals and stock trades, favors for lobbyists and corporate “donators,” and twenty other forms of pay-for-play in Washington are more of a clear and present danger than a handful of Russian operatives ineffectually obscuring peanuts payments for hosting fees and bribes.

Perhaps the administration would prefer scripture: “Why do you see the speck that is in your brother’s eye, but do not notice the log that is in your own eye?”

If anything these indictments are evidence only that cryptocurrency is here to stay, usable by you, or me, or an rival nation-state, or our own — just like any other financial instrument.